In homeless shelter, residents compete to save more

Residents of a homeless shelter were offered a prize of $100 for the individual who saved the largest percentage of his or her pay during a one-month period. The results were impressive, with the average rate of savings increasing from $127 to $207 during the month of the competition—a 33 percent increase, from 53 percent to 86 percent of earnings saved by participants, whose average monthly income was $240. (Credit: iStockphoto)

Competition and financial incentives may be a way to spur the working homeless to save more of their pay—and in turn improve their future prospects.

For a new study published in the Journal of Economic Behavior and Organization,researchers worked with residents at an Arizona homeless shelter who were deemed to be at the highest level within the shelter by complying with community rules and honoring responsibilities.

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The shelter provided food, toiletries, and transportation expenses on the conditions that residents would find jobs and save a portion of their income each month. Shelter residents who participated in the study had jobs and were close to obtaining permanent housing.

The researchers categorized 123 residents into baseline and competition groups. The baseline group engaged in their ordinary saving behaviors, depositing a portion of their income in savings accounts or giving it to the shelter’s case manager for safekeeping.

In the competition group, however, residents were offered a prize of $100 for the individual who saved the largest percentage of his or her pay during a one-month period.

Impressive savings

The results were impressive, with the average rate of savings increasing from $127 to $207 during the month of the competition—a 33 percent increase, from 53 percent to 86 percent of earnings saved by participants, whose average monthly income was $240.

When the competition repeated for a second month, there was no difference in saving between the competition group and the baseline group—possibly because those residents who responded to competition in the first month were able to leave the shelter soon afterward.

Also, the experiment may have worked too well, spurring a burst of unsustainable effort and leaving residents in the competition group unable to save at the same high rate for a second month.

“If it was the case that people who wanted to leave the shelter sooner used the competition as a way to spark a last burst of effort, and that increased their total savings in the end, then it’s useful,” says Sera Linardi, assistant professor of economics at the University of Pittsburgh and in the Graduate School of Public and International Affairs. “If, on the other hand, it exhausts them, then that’s not good.

“If you think everyone has an equal chance of winning,” she says, “you’ll put in higher effort. So there’s a higher chance they’ll put in more effort here.

“Previously, in other environments, the homeless might have felt that they could not get ahead of others in terms of their finances. But competing among clients of a homeless shelter levels the playing field. ”

Linardi and colleagues say focusing on savings might be premature, and lead only to short-term results, if such initiatives are not paired with efforts to improve job skills and income of the homeless over the long run.

But the experiment and its findings could be part of a broader solution to homelessness.

Pointing to the lower-level residents at the Arizona shelter, who have difficulty finding jobs with regular pay and may be facing addiction or health struggles, Linardi says, “Maybe something similar to this competition, that is not directly focused on saving, would be appropriate.”

She cited the example of Back on My Feet, a national group helping the homeless improve their confidence and self-esteem through physical exercise challenges.